R4

Question 1

R4 generated from risk associated with

Answer 1

Reinsurance recoverable
Unpaid loss and LAE
Excessive premium growth
AH claim reserves

Question 2

Company RBC %

Answer 2

Straight average of industry reserve RBC % and industry reserve RBC % adjusted for company experience

Question 3

Industry RBC %

Answer 3

Provided by NAIC; ratio of net incurred loss and DCC development during the year to the net loss and DCC reserves from the prior year

Question 4

Company development factor

Answer 4

(Sum of prior 9 AY loss and DCC in current year)/(Sum of initial valuations of same AYs); capped at 400%

Question 5

Should not make company adjustment for Company RBC% if

Answer 5

Initial or current values are < 0

History is not long

Question 6

Loss sensitive discount

Answer 6

Loss sensitive discount factor * Percent loss sensitive reserves

Question 7

Loss sensitive discount factor

Answer 7

Direct: 30%; Assumed: 15%; assumed is lower because commissions are loss sensitive (offset)

Question 8

Loss concentration factor

Answer 8

0.3 * max(Line % of loss & LAE reserves to total) + 0.7

Question 9

Excessive premium growth

Answer 9

3 year average growth rate in GWP exceeding 10% (each year over year capped at 40%)

Question 10

Average growth rate factor

Answer 10

Min(Max[Average growth over 3 years, 0.1],0.4) - 0.1

Question 11

Excessive premium growth RBC charge

Answer 11

Average growth rate factor * 0.45 * net loss and LAE reserves

Question 12

Base loss and LAE reserve RBC by line

Answer 12

[(Company RBC% + 1) * Adjustment for income - 1] * Net LLAE reserve; reserve from P1, gross of non-tabular discounts, net of tabular

Question 13

R4 intended to measure

Answer 13

Risk that reserves will develop adversely

Question 14

Before using reserve amounts in RBC calculations

Answer 14

Should be gross of non-tabular discount (balance sheet is net)

Question 15

Discount for retrospectively-rated policies

Answer 15

0.3